June 23: After a delay of three months in announcing the excise policy, the Delhi Government has come out with a policy that does not translate into any significant change for the Indian wines and up to 10% change in the existing rates, making bootleggers laugh while the importers try to hide their tears, reminding me of a song from yesteryears-Smoke Gets in Your Eyes.
‘Smoke gets in your Eyes’ is a 77-year old but evergreen song frequently recorded by dozens of singers over time, including Platters, Vic Damone, Harry Belafonte and Nat King Cole. With due apologies to the original lyricists, I changed one line in the final stanza so the importers can sing in a chorus:
Now laughing friends deride
Tears I can not hide
Oh, so I smile and say
When it comes to Delhi Excise
Smoke gets in your eyes
The delay of three months, though due to the change of guard in the excise department as well as the finance ministry of the Delhi government, gave rising hopes to the gullible few that the government was serious about streamlining duties and bringing down the rates, hopefully to the Maharashtra and Karnataka levels. While no one was optimistic enough to fantasise that the excise duties would be rolled back to Rs.150 a bottle- the previous rate before the rates were jacked up unilaterally 3 years after Maharashtra ran amuck for a couple of years, there was a general optimism after the government indicated that the duty would be on the Whole Sale Prices, it would make the percentage reasonable. Slabs of 30-50% were being considered as fair possibilities for a start.
The government has been benevolent and understanding enough to delink the prices from MRP and connect with the Wholesale Prices without the component of customs duty and VAT but the rates of duty have been pegged at 65% on the first Rs.1000 (WSP) and in addition 50% of the amount more than Rs.1000.
The excise department has tried to justify the rate of 65% by imposing the same percentage for Indian wines as well-but for the wholesale price of Rs.0-100, then taking it down to 40 % for the next Rs.150 and 30% for higher than Rs.250 WSP. There seems to be some discrimination in the slab rates, especially as the imported wines come with the profit margins of the foreign producer and the prices are already high.
The net rates for duty have not changed significantly for Indian wines in the new policy. According to Sula, the rates may go up marginally on some but go down on the others. Wine that sold for Rs.470 now will cost Rs.475 while there is an addition of Rs.6-7 on Sula Brut. Similarly, Zampa confirmed that the increase will be marginal only. The Indian industry has already received the benefit as reduced annual license fee and registration charges, which will benefit smaller producers. Vintage Wines, a small but quality wine producer from Niphad, near Nashik, will enter the Delhi market soon. ‘We were already thinking of entering this market after some gap, but now we are determined to sell in Delhi and will be applying for the license,’ says Yatin Patil.
The net result of the new policy does work out to minor reduction of 5-8% on the wines that were selling on duty paid basis last year. However, in the duty free segment, there is increase, in case of some expensive wines like Champagne as high as Rs. 2000.
Debjit Dasgupta, Hon. Secretary of the Delhi Foreign Liquor Association, concurs. ‘The duty on entry level wines sold on duty paid basis where WSP is Rs.200, the excise duty works out to a reduction of Rs.44. For a higher end wine that sold at an MRP of Rs.6640, there is a decrease of Rs.300, around 5%.
‘However, in the duty free segment, in the mid range where the WSP is around Rs.600, there is an increase of around Rs. 140. For a wine with WSP of Rs.4500 the increase is around Rs.1100,’ he adds. Another importer, Ranjit Gupta of Amfora, claims that the excise duty on his Champagne goes up by around Rs.2000.
The issue of MRP on Duty Free and Duty paid was a nebulous one earlier. The products with high MRP like Rs. 3000 and above would not retail anyway. So many importers registered these wines, based on zero customs duty for hotels with the duty-free license. This legit exercise saved the buyer excise duty considerably. The excise department seems to have covered the loophole.
Boom in Bootlegging Business
Most importers believe that the current policy will result in a boom in the bootlegging business (with the bootleggers who seem to be the only ones booming in the industry UN Style- with no tax payable on the income). The growth will be much more in the spirits where the excise duty has been increased to 85%, making every bottle of imported liquor more expensive-even the bootlegger will demand a share of the pie because of higher savings possible for the consumer when they buy from him.
Annoying Affidavit
Another annoying aspect of the policy seems to be the government insisting on an affidavit by the importers certifying that the WSP they declare is less than the adjoining states of Haryana, Punjab and UP. ‘This is quite illogical as prices in Delhi cannot logically be less since Haryana etc do not charge any excise duties whereas in Delhi the high duties would need to be incorporated in the price,’ says Dasgupta.
In all likelihood, importers would be obliged to submit affidavits till one day someone in the department threatens to cancel the license (the threat is part of the licensing condition).
A preliminary discussion with legal experts confirms that this clause is patently illegal and unconstitutional. Everyone has the right to do business and this clause threatens to stop their business. It does appear to be illogical and illegal and one hopes that the affidavits will be filed away in the vaults.
It seems fair to assume that the Delhi government with inexplicable reasons for over-the-budget expenditure in projects during the Commonwealth Games 2010 is strapped for funds and the cost-plus administrative governance demands that the coffers must be filled by taxing more and from any sources, excise is just one of them.
It seems the current government still believes that the more the tax levied, the more would be the revenues generated. Ask your friendly bootlegger in confidence and he would laughingly deride at the honest, law abiding importer who will say:
Now laughing friends deride
Tears I can not hide
Oh, so I smile and say
When it comes to Delhi Excise
Smoke gets in your eyes
Subhash Arora
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